Design of Pareto optimal CO2 cap-and-trade policies for deregulated electricity networks

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Abstract

Among the CO2 emission reduction programs, cap-and-trade (C&T) is one of the most used policies. Economic studies have shown that C&T policies for electricity networks, while reducing emissions, will likely increase price and decrease consumption of electricity. This paper presents a two layer mathematical-statistical model to develop Pareto optimal designs for CO2 cap-and-trade policies. The bottom layer finds, for a given C&T policy, equilibrium bidding strategies of the competing generators while maximizing social welfare via a DC optimal power flow (DC-OPF) model. We refer to this layer as policy evaluation. The top layer (called policy optimization) involves design of Pareto optimal C&T policies over a planning horizon. The performance measures that are considered for the purpose of design are social welfare and the corresponding system marginal price (MP), CO2 emissions, and electricity consumption level.

Original languageEnglish
Pages (from-to)371-383
Number of pages13
JournalApplied Energy
Volume119
DOIs
StatePublished - 15 Apr 2014
Externally publishedYes

Keywords

  • Cap-and-trade
  • Electricity networks
  • Game theory
  • MPEC/EPEC

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